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Should I Refinance My Auto Loan? (10.73% APR)

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All, thank you for your help in advance and if I've breached any etiquette of the forum, please let me know.


Here are the current details on my car loan:


Loan Balance: $10,927

Remaining Term: 54 months

Current APR: 10.73%

Monthly Payment: $255


From what little I understand about financing, this seems bad.  I'd like to really clean up my credit so I signed up for Credit Karma to see an estimate of my credit score.  According to Transunion, it's 606; according to VantageScore (with which I am unfamiliar), it's 654.  I looked under the Recommendations tab in Credit Karma and they are advertising a loan refinance from Innovative Funding Services (IFS) with the following details:


Loan Balance: $10,927

Remaining Term: 72 months

Current APR: 7.49%

Monthly Payment: $189


I don't really know if this is a good deal due to the extended term length.  I also just did some simple math:  on my current loan, I owe 54 more monthly payments of $255.52, which totals $13,798.08.  If I take the new loan, I owe 72 monthly payments of $189, which totals $13,608, which is less than $200.00 less.  I would think a lower APR would make a much more significant difference than that, so why is the difference so small?


I also find it perplexing that I originally financed the amount of $13,495.53 and yet I will stay pay $13,798.08 over the next 54 months.  However, I have already made 19 payments of $255.52.  Does this mean I have been paying just the interest for the past 19 months?  I am really fretting if that's the case.  I clearly need to better understand how loans work, but in my desperation to buy a car after totaling my previous one, I foolishly did not pay enough attention to the paperwork.  I vaguely remember getting a service plan and GAP insurance with the loan too.


Thank you again for your assistance.

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First, Credit Karma is basically what you said, just an "estimate" of your credit worthiness and the scores it provides are what we call FAKOs...nobody who's going to lend you money looks at those.  Creditors get their scores from FICO...and only FICO knows exactly how  they're calculated.


Second, as for the car loan...the refinance is NOT a good idea.  The only reason your "new" payment would be lower is that you'd be making an extra 18 payments.  And, yes, the service plan and GAP insurance raised the total amount you borrowed beyond the value of the car.


A better plan would be to add a little extra to your existing payments and pay it off sooner.

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Without knowing all the details I can only offer a general opinion. The first thing will be to determine if your car has enough of a loan value to refinance. If it does check with some local credit unions. You might find a lower interest rate on like a 48 month loan with a similar payment. If you qualify then at least you will get it paid off sooner.


Most gap insurance policies offer a prorated refund. So if you refinance this should save you some money. You might even do this with the service plan, although every situation is different. If it is a good plan then it might pay you to keep it. If you are struggling to make your payments you don't want to have any unexpected large repair bills in the future. 


A lot of credit unions and some banks look at a lot more than just a credit score. Your job stability and how you have paid on previous auto loans may carry more weight than just your score. Go here and pull your free credit reports. http://www.consumer.ftc.gov/articles/0155-free-credit-reports 


If you know which one is used most in your area then you might pay an extra $7.-$10. and find a more accurate score. I know my CreditKarma score is a lot different than the CB scores. 

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